Wellington - Bitcoin’s spectacular gains look like a speculative bubble and the cryptocurrency is too unstable to be useful in the future, New Zealand’s central banker says.
“It looks remarkably like a bubble forming to me,” Reserve Bank of New Zealand Acting Governor Grant Spencer said in interview with TVNZ broadcast on Sunday. “Over the centuries we’ve seen bubbles, and this appears to be a bit of a classic case. With a bubble, you never know how far it’s going to go before it comes down.”
Bitcoin has soared more than 1 500% this year, and about 85% in just the past two weeks, as people rush to buy the digital currency in the hope it will become a legitimate alternative to gold or traditional money.
Trading in bitcoin futures opens later on Sunday, with the first major US exchange offering a product pegged to the wildly fluctuating unit of payment that has no backing from a government or a central bank.
Bitcoin, “mined” by computers performing complex calculations, surged to over $16 000 last week, and all bitcoins in circulation are now worth more than New Zealand’s entire $185bn economy.
Early investors include the Winklevoss twins, who played an early role in Facebook's formation. Cameron Winklevoss told Bloomberg on Friday he think bitcoin’s gains have only just begun as it will come to be seen as an upgrade to gold.
“Bitcoin is to me very much like gold,” Spencer said. “It’s mined, it has a fixed quality and the price is very volatile.”
The RBNZ is doing research on demand for New Zealand’s dollar, known as the kiwi, and whether it would be feasible to at some stage replace it with a digital alternative, but Spencer said bitcoin isn’t a template for the future.
“I think digital currencies, cryptocurrencies, are a real and serious proposition for the future.
I think they are part of the future, but not the sort that we see in bitcoin,” he said. “I think a cryptocurrency that has a more stable value will be the sort of cryptocurrency that’s more useful for the future.”